Nick Mersch’s Top Picks for Jan. 20, 2026

Nick Mersch, Portfolio Manager, Purpose Investments

Focus: Technology stocks

Top picks: Taiwan Semiconductor Manufacturng Co Ltd, Emcor Group Inc., Fluence

MARKET OUTLOOK:

What worked last year will continue to work this year - but the separation between winners and losers will become even more pronounced, and the path upward will be increasingly volatile.

My investment thesis for 2026 is: Identifying and investing in bottlenecks. When you have massive mobilization of capital in capex cycles, there are structural demand and supply imbalances that create bottlenecks. Bottlenecks mean pricing power. Pricing power means earnings growth. Stock prices have a 100 per cent correlation with earnings growth.

This means you will have to shift where you invest in the AI value chain, as the rollout progresses. We are still firmly in the build stage. Invest in the enablers for the first half, then start sliding the scale to the adopters.

Artificial intelligence is fundamentally changing how we must view the business models of technology companies. The magic trick used to be: build once, sell forever. With AI, what is being sold is metered intelligence. This isn’t just software distribution at scale; it’s a utility. The customer is not only buying a product, but consuming a resource.

This means that technology analysts, for the first time in decades should spend equal time on the physical economy as well as the digital one.

My five key themes for 2026:

1. Power (Nat Gas, Nuclear, Utilities, Behind-the-meter Generation)
2. Semiconductors (GPUs, memory, semi cap equipment)
3. Supporting infrastructure (Cooling, transformers, electric power systems, construction)
4. Vertically Integrated Cloud (Google, Amazon, Microsoft)
5. Adopters (Healthcare)

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TOP PICKS:

Taiwan Semiconductor Manufacturng (TSM NYSE)

TSMC is the quiet powerhouse behind modern tech: it doesn’t design chips, it manufactures them for the companies you actually know—think Apple, Nvidia, AMD, and Qualcomm. It pioneered the pure-play foundry model and has become the world’s most important chip factory, especially at the cutting edge like 5nm and 3nm, with 2nm on deck. In plain terms: if it’s a premium smartphone, a cloud data center, or an AI supercomputer, there’s a very good chance TSMC made the brains inside it.

In the semiconductor ecosystem, TSMC is the choke point—by market share and by capability. It dominates the most advanced manufacturing where very few companies can compete, which is why nearly every top chip designer depends on it for performance and scale. That concentration in Taiwan also creates geopolitical sensitivity, so TSMC is expanding globally with new fabs in places like the U.S., Japan, and Europe—partly to diversify risk and partly because governments and customers want supply closer to home.

Over the next 12 months, the biggest driver is AI: high-performance computing chips are taking a larger share of revenue, and demand for advanced nodes plus sophisticated packaging is surging. The company is responding with massive investment—tens of billions in annual capex—to expand capacity and stay ahead at 2nm and beyond. Financially, the story is premium growth at premium margins: strong revenue and profit expansion powered by a richer mix of advanced chips, with investors watching whether TSMC can keep translating AI demand into high utilization, strong pricing, and continued margin resilience—even as overseas fabs add cost.

Emcor (EME NYSE)

Emcor specializes in mechanical and electrical systems—wiring, HVAC, plumbing—for mission-critical facilities like data centers, hospitals, and semiconductor fabs. It also runs large-scale facilities management for commercial and government clients. With over 40,000 employees across 100+ subsidiaries, EMCOR is a scaled operator in high-complexity environments.

Here’s the kicker: Emcor isn’t just in construction—it’s enabling the AI era. As Microsoft, Meta, and Alphabet pour billions into hyperscale data centers, Emcor’s the one installing the power and cooling systems. Around 25 per cent of its revenue now comes from AI-related projects, and nearly a third of its record $12.6 billion backlog is tied to these high-tech builds.

Key 12-month drivers include accelerating AI data center demand (Emcor’s backlog here has doubled), massive U.S. factory buildouts (from chip fabs to EV plants), and strong tailwinds from industrial reshoring. Margins are at record highs (~nine per cent), and productivity is up as revenue grows faster than headcount.

Financially, Emcor expects $16.7 billion in 2025 revenue (up from $14.6 billion) and ~$25 in earnings per share (EPS). It trades at 25 to 28 times earnings—rich for a contractor, but justified by consistent outperformance and capital discipline (e.g. $400 M buybacks, smart acquisitions).

This isn’t just a builder—it’s an AI infrastructure enabler with earnings power to match.

FLUENCE (FLNC NASDAQ)

Fluence is a grid-scale battery specialist that helps utilities “store the sun and wind” so clean power can be delivered when people actually need it. Instead of letting renewable electricity go to waste when production is high, Fluence installs large battery systems that can discharge later—making the grid more reliable and helping replace fossil-fuel “peaker” plants.

In the clean-energy ecosystem, Fluence is basically the shock absorber for an increasingly renewable grid. As solar and wind grow, you need storage to smooth out the ups and downs—frequency control, backup power, and shifting energy from midday to evening. Fluence also differentiates with software and services that optimize how these batteries run, so customers can squeeze more value out of the same hardware.

Over the next year, the big story is execution: turning a record order pipeline into delivered projects and better margins. In its fiscal year ended Sept. 30, 2025, Fluence reported $2.3 billion in revenue and said backlog hit a record ~$5.3 billion, with >$1.4 billion of orders signed in just the fourth quarter—then it guided 2026 fiscal year revenue of ~$3.2 billion to $3.6 billion, noting about 85 per cent of that revenue target (at the midpoint) was already covered by backlog.

PAST PICKS: Aug. 21, 2025

Cloudflare (NET NYSE)

Then: US$192.77

Now: US$179.31

Return: -7%

Total Return: -7%

Microsoft (MSFT NASD)

Then: US$504.24

Now: US$452.31

Return: -10%

Total Return: -10%

Nvidia (NVDA NASD)

Then: US$174.98

Now: US$179.73

Return: 3%

Total Return: 3%

Total Return Average: -5%